Calculating Position Sizes: Spreadbetting and Traditional Accounts

Filed under: Learn Forex Trading |

Screen shot 2013-05-29 at 10.27.42The calculation of position sizes is perhaps something that puts many people off trying to trade the forex markets – but it does not have to be so complicated if you follow a few simple mathematical rules. Calculating position sizes on a spreadbetting account and on a traditional leveraged account is very different, so I will briefly run through what you will need to do on both by way of a few examples.

 

To begin with, calculating position sizes on a spreadbetting account is relatively easy. What you need to do first is work out how much you want to risk on a trade. Let’s say that you want to risk $100 on the AUD/USD pair. Next, you set a logical stop loss level. If you are happy with this, you can now work out how many pips there are between your entry and your stop loss. Let’s say that this figure is 460 pips (with an entry at 0.95700). However, your spreadbetting account for the AUD/USD pair says ‘bet per 0.0001’. Therefore, for 460 pips with a $100 risk, you will need to bet a position size of $2.17 (100/46).

 

With a traditional standard forex trading account, things get a little more complicated, because you also have to take into account the currency that you are funded with. Let’s say that you are making the same trade as in your spreadbetting account. This calculation would be your risk ($100) divided by the number of pips (460), which is 0.22 lots. However, if you are funded with say British pounds, then you will need to make an additional calculation as 100 GBP is significantly more than $100. Therefore, if the exchange rate between the GBP and USD is 1.5, then you will need to multiply your lots by this figure as well.

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